1

Asian Drivers and Emerging Asian Drivers and Emerging CountriesCountries

Standard Chartered

London June 15th 2006

Javier SantisoChief Development Economist & Deputy Director

OECD Development Centre

2

11 The cognitive effect: new emerging capitalisms.The cognitive effect: new emerging capitalisms.

The trade effect: the dark side of the boom. The trade effect: the dark side of the boom. 22

China and India as a wake up call.China and India as a wake up call.33

3

EmergingAsia8.0%

GDP share of world output (WEO, 2004)

EU30.7%

US29.6%

Korea&Japan12.7%

China4.2%

The cognitive impact: The emergence of new capitalisms. Center and Periphery rebalanced…

LatAm4.8%

Asia represents more than one fifth of world output.

4

China has doubled its GDP in 8 years: a unique combination of economic pragmatism and catching up process…without the help of Money Doctors!

Chinese growth rates has been higher than those observed in Brazil and Mexico during their glorious years.

Source: based on WEO and PWT

PPP per capita GDP in constant prices

(thousand of US$, 2004-5 estimate)

0

4

8

12

16

20

24

2819

85 1

950

1988

195

3

1991

195

6

1994

195

9

1997

196

2

2000

196

5

2003

196

8

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

e

China

J apan

Korea

Brazil

Mexico

5

Asia´s growth is based on an outward looking strategy: a development strategy to follow for Latin America and

Africa.

Source: IMF DOTS

… and its share in world merchandise trade has duplicated in less than a decade.

China's share in world merchandise trade (%, 1980-2004)

0%

1%

2%

3%

4%

5%

6%

7%

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Trade openness (X+M/GDP, 2004)

0%

50%

100%

150%

200%

250%

Mal

aysi

a

Tha

iland

Chi

na

Sou

th K

orea

Indo

nesi

a

Indi

a

Chi

le

Mex

ico

Ven

ezue

la

Uru

guay

Arg

entin

a

Col

ombi

a

Per

u

Bra

zil

Region's Average 2004

Source: WTO, National Statistics

China’s trade openness surpasses that of all Latin American countries …

6

11 The cognitive effect: new emerging capitalisms.The cognitive effect: new emerging capitalisms.

The trade effect: the dark side of the boomThe trade effect: the dark side of the boom. . 22

China and India as a wake up call.China and India as a wake up call.33

7

Some findings: The Good, The Bad and the Ugly.

Countries specializing in the production and export of components, capital goods and raw materials feel positive effects from China’s growth while countries specialized in the production of consumer goods feel negative effects (Eichengreen & Tong, 2005).

The exchange rate issue maters: a 20% appreciation of the renmimbi reduces exports to the US by a fifth, while other regions will increase their sales to that market (0.5% for Latin America) (Lopez Cordoba, Micco and Molina, 2005).

Tout est pour le mieux dans meilleur des mondes? (Candide, Voltaire).

8

China´s strong demand for energy and commodities: a bonanza or a threat?

Source: BBVA, Cochilco

Consumption of aluminum, 2004(estimate)

24%

22%

20%

23%

11%

North America

Western Europe

China

Other Asia

Rest of world

Consumption of nickel, 2004(estimate)

11%

38%

11%

13%

20%

7%

North America

Western Europe

China

J apan

Other Asia

Rest of world

Source: JP Morgan estimates

Source: BP

Share of total oil exports by destination region/country, 2003 (%)

28%

2%

0%

2%

26%1%

6%

12%

19%

1%

3% USA

Canada

Mexico

S. & C. America

Europe

Africa

Australasia

China

J apan

Other Asia P acific

Rest of World

Share of total copper exports by destination region/country, 2004

18%

0%

31% 9%

17%

5%

14%

6%

50%

America

Others

Europe

South Korea

China

Taiwan

J apan

Others Asian

Asia

9

Source: C.HJ.Kwan, Nomura Institute of Capital Markets Research Source: Blázquez, Rodríguez and Santiso (2006)

China’s demand for commodities: a bonanza or a threat?

Asian countries competition* vs. Chinese exports to US, %

010203040506070

*Value of exports to US from China in same product categories as country´s exports, as % of country´s total exports to US

Latin American countries competition* vs. Chinese main export products

0%

10%

20%

30%

40%

50%

60%

México

Bras

il

Colombia

Arge

ntina

Perú

Urugu

ayChil

e

Vene

zuela

*Arithmetic average of the following indexes: CC= and CS=

where ajt and ait equals the share of item “n” over total exports of countries j (China) and i in time t.

å --n

njt

nit aa

2

11

åå

å

n

njt

n

nit

n

njt

nit

aa

aa

22 )()(

10

China has become a major destination of Brazilian exports: The bonanza.

Source: SECEXSource: BBVA

Trade Balance with China

574

966

2.385

1.729 1.694

0

500

1000

1500

2000

2500

3000

2001 2002 2003 2004 2005p

US$ millions

Major countries of destination of Brazilian exports

United States 22,6% 1º United States 21,1%Argentina 11,2% 2º Argentina 7,6%

Netherlands 5,4% 3º Netherlands 6,1%Germany 5,3% 4º China 5,6%Japan 4,6% 5º Germany 4,2%Italy 3,8% 6º Mexico 4,1%

Belgium 3,8% 7º Italy 3,0% United Kingdom 3,0% 8º Japan 2,9%

France 2,5% 9º Chile 2,6%Spain 2,4% 10º France 2,3%Mexico 2,2% 11º United Kingdom 2,2%Chile 1,9% 12º Spain 2,1%

Russia 1,6% 13º Belgium 2,0%Paraguay 1,6% 14º Russia 1,7%China 1,4% 15º Venezuela 1,5%

1999 2004

11

Brazilian exports of primary products: more is not better (Dutch disease and monopsony power: issues to watch).

0.05

0.06

0.07

0.08

0.09

0.10

0.11

0.12

Jan

-89

Jan

-90

Jan

-91

Jan

-92

Jan

-93

Jan

-94

Jan

-95

Jan

-96

Jan

-97

Jan

-98

Jan

-99

Jan

-00

Jan

-01

Jan

-02

Jan

-03

Jan

-04

Herfindahl-Hirschmann Concentration Index ofBrazilian exports by country of destination

more

con

cen

trati

on

less

con

cen

trati

on

Source: BBVA and Bradesco

Herfindahl-Hirschmann Concentration Index of Brazilian exports by industry, 1990-2003

0,00

0,02

0,04

0,06

0,08

0,10

0,12

0,14

0,16

0,18

0,20

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

Source: WTO.

+ c

on

cen

trati

on

+ d

ivers

ific

ati

on

12

11 The cognitive effect: new emerging capitalisms.The cognitive effect: new emerging capitalisms.

The trade effect: the dark side of the boom. The trade effect: the dark side of the boom. 22

China and India as a wake up call.China and India as a wake up call.33

13

China competes intensively with Mexico on a global level

Chinese trade competition with Latin America

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.0 0.1 0.2 0.3 0.4 0.5 0.6

Mexico

Brazil

Colombia

VenezuelaChile

ArgentinaPeru

Costa Rica

Chinese global trade competition

0.2

0.3

0.4

0.5

0.6

0.7

0.30 0.35 0.40 0.45 0.50 0.55 0.60

Mexico

ThailandHungary

USA Czech R.

Spain

Poland

Japan

Source: Blázquez, Rodríguez and Santiso (2006)

14

11,700 Km

• Lower transport and communication costs • Access to FTA• Just-in-time delivery

Mexico is more competitive in manufacturing more sophisticated products which require frequent communication with the client or

supplier and short reaction times.

Shipping time

24 Days

160 Km

4 Days

Mexico benefits from its geographic proximity to its major export markets:

Mexico’s competitive advantage: proximity to export

markets

15

Source: US Census Bureau, CIBCWM (2005)

* Total expenditure on freight as a share of total imports of commodity, average for all countries

Source: CIBCWM (2005)

México vs. China at different oil prices

Mexico’s competitive advantage: lower transport costs

US imports from China tend to be more transport sensitive than from Mexico. Could transport savings offset Chinese lower

wages ?

1.7 2.14.7 6.91.9 1.81.8 1.95.2 1.76.7 5.24.9 1.74.8 3.03.0 2.04.9 2.0

Trade-weighted Freight Rate 3.7 2.9

General Industrial Machinery Scientific InstrumentsTextile Yarn Special trans&commodities

Footwear Power Generating MachineryManufactures of Metals nes General Industrial Machinery

Apparel Office MachinesFurniture Apparel

Telecommunications Electrical MachineryElectrical Machinery Telecommunications

Office Machines Road VehiclesMisc Manufactures Petroleum

Transport Costs* of US Top 10 Imports (2003)

CHINAAverage

Freight RateMEXICO

Average Freight Rate

16

World Bank

US$/TEU

CMPCH Index

LSU Index

Singapore 1 0.38 0 0.33 2 6.76 6.72 117 NA NAHong Kong 0 0.25 0 0 NA 6.38 5.46 NA NA NATaiwan 0.5 0 0 0 NA 5.18 4.49 140 163 NAJapan 0.75 0.13 0.89 1 NA 5.16 5.16 250 202 NAMalaysia 0 0.25 0 0.38 7 4.95 5.76 75 NA NASpain 0 0.06 1 0 4 4.88 6.08 200 105 NAKorea 0 0.38 0 0 NA 4.12 5.22 NA NA NAThailand 0.5 0.63 0 0.38 4 3.98 5.12 93 NA NAArgentina 0 0.13 0 1 7 3.81 4.52 NA 139 NAVietnam 0 0 0 0.5 NA 3.81 5.02 NA NA NAChile 0 0.25 0.43 1 3 3.76 6.05 202 100 NAChina 0.5 0 0 0 7 3.49 4.44 110 NA NAIndonesia 1 0.06 0 0.38 5 3.41 4.06 NA NA NAMexico 0.5 0.38 0 1 4 3.34 2.61 NA NA NAVenezuela 0 0 1 1 11 3.28 3.63 NA NA NAEl Salvador 0 0 0 1 4 2.95 2.3 NA NA 61Brazil 0.5 0.75 0 1 10 2.92 4.45 328 292 NAPeru 0.5 0 0.5 1 7 2.88 3.32 NA 142 NAIndia 0 0 0 1 NA 2.79 4.28 NA NA NAPhilippines 0.5 0 0 0.38 7 2.79 3.51 118 NA NAEcuador 0 0 0.43 1 15 2.63 3.65 NA 139 NACosta Rica 0 0 0 1 4 2.46 3.28 NA NA 68Colombia 0.5 0.13 0.5 1 7 2.26 1.88 NA NA NABolivia NA NA NA NA 9.5 1.61 4.38 NA NA NAUruguay 0 0 0 1 5 NA NA NA NA NA

NA: Not AvailableSource: Data for the first 4 columns was kindly provided by Carsten Fink, Aaditya Mattoo, and Ileana Cristina Neagu* (2002).

Container Handling ChargesCooperative Agreements

Index

Median Clearance

time (Days)

Port Efficiency Index (1-7)

Crime Index (1-7)Country

Cargo Handing

Restriction Index

Mandatory Services

Index

Price Fixed Agreements

Index

Pending reforms : the upgrade of port facilities

17

Conclusions: A Watch List

Africa and Latin America: Out of the Value-Chain Game?

The share of China’s total exports produced by foreigners has risen sharply, from 32% to 60% between 2000 and 2005.

Foreign outsourcing is becoming a major driver of India’s and China’s high tech exports, both countries moving up quickly in the value added ladder.

In 2005 for example, of China’s top 100 exporters, 53 were foreign companies and all were electronics/information technology companies.